Chance of conviction
Thursday, Feb. 19, 2004: 22 percent
After another victor-less tug of war, Stewart's chances of conviction remain at 22 percent.
Yesterday, the prosecution demonstrated (interminably) that Peter Bacanovic kept an extensive computer log of client interactions, that the log recorded many interactions about ImClone stock, and that the log did not mention any $60 agreement with regard to Martha Stewart's ImClone stock—thus suggesting that the $60 agreement was a crock. Today, the defense demonstrated (even more interminably) that Bacanovic had many other client interactions that weren't recorded in the computer log—thus suggesting that the prosecution's suggestion that the $60 agreement was a crock was itself a crock. The defense made its point, but not before the courtroom scene had, once again, transmogrified into Day of the Living Dead.
Later, Bob Morvillo hijacked Gregory Blatt, a government witness and the former general counsel of Martha Stewart Living Omnimedia, to facilitate a presentation about insider sales and media hysteria. First, Morvillo reminded the jury that corporate insiders sell stock for lots of reasons (diversification, liquidity, profit-taking, etc.), only one of which suggests a forthcoming calamity (insider trading). As a corporate insider herself, Morvillo implied, Stewart knew this. Stewart also knew, Morvillo continued to imply, that some executives sell via automatic-sale agreements and that most insider sales are governed by blackout periods, in which executives either can't sell or have to get permission to sell. Morvillo's point, presumably, was that, on Dec. 27, 2001, Martha Stewart would not necessarily have concluded that Sam Waksal was selling his ImClone stock because of impending bad news.
Through Blatt (who sat dutifully and supplied answers while Morvillo worked through his presentation), Morvillo then turned to the events of June 2002: the media hurricane that followed leaks about the Stewart investigation. One by one, Morvillo introduced more than 50 news stories offering breathless play-by-plays of the escalating scrutiny and rhetoric: Congress was investigating ImClone, Congress was investigating ImClone trades, Congress was investigating ImClone trades by Sam Waksal, Congress was investigating ImClone trades by buddies of Sam Waksal (including Martha Stewart, who, in some stories, was "romantically linked" to Waksal), Congress was investigating Martha Stewart's ImClone trades, congressional spokespeople were opining that it was, at the very least, "curious" that Stewart and others had sold a day before the Erbitux news broke, congressional sources were suggesting that Sam Waksal had tipped off Stewart about Erbitux, congressmen were confiding that, in their opinion, such trades were obviously illegal, etc.
Morvillo's point here, presumably, was to pre-emptively undermine the prosecution's theory that Stewart's motive in releasing her public (allegedly) false statements was, selfishly, to protect the value of her Martha Stewart Living Omnimedia stock. To this end, Morvillo had Greg Blatt describe his increasing consternation about how the speculation was affecting Martha Stewart Living's business, along with his increasing insistence that Stewart release a detailed explanation of her trade (her first statement appeared in a June 7 Wall Street Journal article). On June 12, the morning that the feds surrounded Sam Waksal's Soho loft at dawn, Blatt's phone rang off hook. Blatt was so agitated, he said, and so insistent that a statement be released that Stewart's Wachtell, Lipton attorneys eventually stopped returning his calls. After the close that day—and, again, a week later—Stewart released two of the three statements that form the basis of the securities-fraud charge (the third being the June 7 comments).
Having already discussed this charge (please see The Securities Fraud Charge and Anything You Do Say May Be Used Against You), I won't repeat myself. Suffice it to say that, to prove that Stewart committed securities fraud, the prosecution has to prove that she made statements (or omissions) that were:
1. Intentionally false and misleading.
One of the reasons this will be challenging, in my opinion, is that most of what Stewart said in her statements was true, even if one believes that Douglas Faneuil told her the Waksals were selling stock. The main thrust of the statements was to 1) deny that she had been tipped off by Waksal; and 2) deny that she had committed insider trading. The prosecution isn't alleging that Stewart was tipped about Erbitux, and, in June 2002, Stewart had every reason to believe that, as she said, her trade was "entirely lawful": Technically, the kind of information Stewart allegedly received was "market" information, not "inside" information, and this kind of market information has not been prosecuted as illegal in the past. Under federal law, securities fraud can't happen accidentally: To be criminal, Stewart's false statements or omissions have to have been intentional and designed to mislead investors. If Stewart's lawyers told her that her trade was "entirely lawful," therefore, it is hard to imagine how the prosecution can prove that she intended this assertion to mislead investors.
The key element of the charge, of course, is the $60 agreement. In my opinion, Seymour, Schachter & Co. have not yet proved that this agreement didn't exist. Even if they have, moreover, they will now have to convince the jury that, separate and apart from the true parts of Stewart's statements, this assertion alone was "false and misleading" and "material."
The prosecution intends to rest by Friday. Before then, we'll hear from, among others, the much-anticipated Ink Expert, who will presumably explain how he determined that Peter Bacanovic added the legendary @60 mark on the allegedly altered worksheet after he made the rest of the marks; Stewart's friend Mariana Pasternak, who will presumably confirm that Stewart mentioned that the Waksals were selling; and Douglas Faneuil's friends, who will presumably say that he confessed everyone's sins only a few days after the trade. Then, finally, the prosecution will rest. At which point, presumably, Bob Morvillo will argue that the case should be dismissed.